Global Economics

Blame Both Sides in Russia-EU Energy Spat

As long as the European Union cannot come up with a long-term coherent strategy, Moscow is not totally at fault in the natural gas line dispute

"Energy security" has become a buzzword that cuts across a number of related issues, ranging from economic development and environmental concerns to domestic and geopolitical stability.

At a basic level, rising petroleum costs hammer home the reality that Europe faces an imminent energy security challenge. The European Union, however, has yet to devise a coherent long-term energy strategy, and East-West tensions hinder its ability to speak on the issue with a unified voice.

While many Western European countries are not necessarily opposed to forging deals with Russia, the region's largest supplier of oil and natural gas, new EU members are wary of dealing with their dominant neighbor. At the second annual Energy Forum, held in Prague in early November, Anita Orban of the International Center for Democratic Transition in Budapest said the Baltic region and Eastern European countries have different energy security concerns than those of Western Europe because they face a larger threat of being cut off.

Russia supplies about 25 percent of the EU's petroleum needs, and many new member states are reliant upon Russia for the vast majority of their natural gas. Russia's Gazprom is the sole provider to Estonia, Latvia, Lithuania, and Slovakia. It is also the dominant supplier to big markets like Hungary, Poland, and the Czech Republic.

Russia has been accused of exploiting Europe's energy dependency as a political tool. Its status as a reliable energy provider has been called into question increasingly since the infamous price dispute between Russia and Ukraine in January 2006 and subsequent supply disruptions to the EU -- moves seen by many analysts as punishments for the Ukrainian government's pro-European leanings.

But Vyacheslav Kulagin, deputy director of Moscow's Center for International Energy Markets Studies, denied that Russia has used the threat of cutting off energy supplies to bully its neighbors. He emphasized that no contracts have been breached on Russia's side of the border. "What other guarantee does Europe need?" Kulagin asked.

Russian Duma deputy Igor Dines warned that the radicalization of political rhetoric due to high energy costs was "a dangerous tendency" and that opening up old wounds was counterproductive to everybody's interests.

Europe's energy anxiety stems from the fact that the primary pipelines for Russian oil and gas run through Ukraine and Belarus, former Soviet states that, until recently, enjoyed discounted energy prices. Russia's heavy-handed attempts to make the countries pay full market rates resulted in energy crises that threatened Europe-bound deliveries. Oldrich Cerny of the Prague-based Forum 2000 Foundation pointed to more than 50 such interruptions since 1991, half of which have occurred since Vladimir Putin became the Russian president in 2000.

STRUCTURING A STRATEGY

Speakers at the energy forum consistently returned to the need for increased dialogue and "diversification" of energy pipelines as the twin components of any strategy for securing energy resources. The creation of a common external energy policy and an internal energy market was touted as the solution to Europe's energy vulnerability.

"Instead of focusing on a common policy, our attention has been diverted to polemics between us," said Fraser Cameron, director of the EU-Russia Center, a Brussels think tank. Cameron called for the need to "de-emotionalize" the idea that the "big, bad Russian bear" will turn off the tap, because the EU is in a strong bargaining position as Russia's chief energy consumer.

But Vaclav Bartuska, the Czech Republic's energy security ambassador-at-large, was circumspect, pointing out that Eastern countries would be the first to suffer if the tap is turned off. Bartuska believes that diversification of energy routes is the best long-term strategy.

"Alternatives to Russian energy do exist, but is the public ready to pay for them?" he asked.

Planned diversification projects, including the Nord and South Stream pipelines, would bypass Eastern European transit countries and ensure supplies of natural gas from Russia to Germany and Italy, respectively. The proposed Nabucco line, which would transport gas from Turkey to Austria via Bulgaria, Romania, and Hungary, aims to alleviate European dependence on Russian sources by tapping into Central Asian suppliers.

The Caspian Sea region also has the potential to play an important role in the diversification process. The EU is one of the largest donors to the region and should step up its involvement, argued Mez Lutz of the Free University of Berlin. "Why is [the EU] still without relevant influence in this region?" Lutz asked.

Ion Sturza, general director of the Moldova branch of Rompetrol, a Romanian oil company, said he believes that the stalled EU-Russia Energy Dialogue needs to be reopened. "We need to stop talking about alternatives to Russian energy, because consumers can't live without these supplies," Sturza said. "Diversification of energy routes is the key."

But not everyone is lining up behind diversification projects. Ukrainian representatives at the energy forum criticized the willingness of many European states to strike bilateral deals with Russia, calling the proposed projects unnecessarily costly, inefficient, and ultimately harmful to Ukraine's European development.

"Ukraine wants to be included in the EU's energy security policy," said Sergei Korsunsky of Ukraine's Ministry of Foreign Affairs, "but the EU doesn't think about it as a partner." He said the proposed pipelines are sending the wrong message to Ukraine, implying that it isn't an important player in energy security.

"Ukraine is stuck between the EU complex and the Russian monopoly," said Sergei Yermilov, director of the Institute for Environment and Energy Conservation in Ukraine. Yermilov said he believes the EU is alienating Ukraine to its own detriment, because the country provides the cheapest route for Russian oil and gas and already has an adequate infrastructure for transport. "Why pay for huge, new expensive projects when the energy is still coming from the same source?" Yermilov asked.

"We may not be part of the EU but, mentally, we are part of Europe," he added.

Magdalena Vasaryova, a member of the Slovak parliament, said it is also in Slovakia's interest to have a democratic, "European-like" Ukraine next door. Slovakia provides the second largest route for energy sources to the EU, from pipelines that originate in Ukraine. Without Ukraine, she said, Slovakia would cease to be a transit route altogether.

European energy security comprises a related set of questions about the extent of EU integration and its neighborhood policies. Central and Eastern European countries' past experiences with Russia continue to play an understandably important role in their threat perception, despite EU membership. And the absence of a common EU policy contributes to Russia's bargaining power with individual states.

As many forum speakers noted, if dialogue is the key to progress, Europe needs to start talking -- and fast.

"We need a common position, we need to make ourselves more interconnected," said Elmar Brok, a German representative to the European Parliament. "We need to start talking about consumer power, not supplier power."